AN EASY WAY TO KEEP CURRENT ON TAX AND LEGAL ISSUES RELATED TO FEDERAL AND FLORIDA TAX, ESTATE PLANNING, PROBATE & BUSINESS MATTERS

Monday, October 17, 2005

2006 Indexing Updates

The Social Security Administration has announced that the wage base for computing the Social Security tax in 2006 rises to $94,200 from $90,000 in 2005, an increase of about 4.67%. This means that the amount of wages subject to these taxes has now increased, and thus the total Social Security taxes of a wage earner who earns at or in excess of the maximum will also be increased. The OASDI tax rate for wages paid in 2006 is set by statute at 6.2 percent for employees and employers, each. Thus, an individual with wages equal to or larger than $94,200 would contribute $5,840.40 to the OASDI program in 2006, and his or her employer would contribute the same amount. The OASDI tax rate for self-employment income in 2006 is 12.4 percent. Note that this increase does not impact the Medicare Hospital Insurance program tax - this tax rate is 1.45 percent for employees and employers, each, and 2.90 percent for self-employed persons - this tax, which is in addition to the above OASDI taxes, has no cap and thus is applied to all wages no matter how high.

Also for 2006, the limit on the income tax exclusion for elective deferrals of wages, that is - the maximum amount an employee may defer into 401(k) plans, 403(b) annuities, SEPs, and the federal government's Thrift Savings Plan, increases from $14,000 to $15,000. The limitation on the annual benefit under a defined benefit pension plan increases from $170,000 to $175,000. The limit on annual additions to a participant's defined contribution pension account increases from $42,000 to $44,000.